Air Transport World

US airlines sink deeper in the red: carriers lose more than $1 billion in the historically best quarter of the year.(Finance)(Industry Overview)

The universe of profitable US airlines shrank further during the third quarter ended Sept. 30 as fuel prices climbed throughout the summer while back-to-back-to-back-to-back hurricanes pummeled those carriers with extensive route networks in Florida and the Caribbean. Yields in the hyper-competitive domestic market continued to erode, although a rise in load factor offset about half the decline.

The low-cost segment was not immune to the challenge as JetBlue's profits plunged 71% while America West and AirTran fell into the red in what historically is the industry's strongest quarter. In late October, ATA Airlines--an LCC although hardly a new entrant--filed for Chapter 11 bankruptcy protection without reporting results for the period. Southwest Airlines, on the other hand, actually improved its performance versus the 2003 third quarter as adept and aggressive fuel hedging mitigated the impact of near-record oil prices.

In aggregate, the industry (excluding ATA) lost $1.26 billion, deepened from a loss of $220.8 million in the third quarter of 2003. Southwest and Alaska Airlines were the only carriers to show a profit during the period, while most saw their position deteriorate year-over-year if special items are excluded.

On the operating level, the industry slipped into a loss of $365 million from income of $778 million a year ago. Revenues for the group rose 6.6% to $23.95 billion but operating expenses climbed 12.1% to $24.31 billion.

Interestingly, according to Merrill Lynch analyst Michael Linenberg, the same airlines would have reported a combined pre-tax profit of $686 million at September 2003 fuel price levels. The huge losses "are forcing many carriers, including LCCs, to re-examine their growth plans for next year," he said. "As a result, 2005 system capacity growth has been revised lower--from 5.4% to 4.2%, down from 7% this year." Furthermore, much of the growth will occur in the international arena, where price competition is less intense.

AMR Corp., parent of American Airlines, reported a net loss of $214 million for the three months ended Sept. 30 compared to a $1 million net profit in the prior-year period. …

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